What question did this study set out to answer?

This research aims to understand how remittances in the Philippines influence the allocation of financial resources towards consumption and investment.

May 28, 2026Open Access

Do Remittances Save or Spend? Testing the Consumption-Investment Allocation Hypothesis for the Philippines Using WDI Time-Series Evidence, 2000–2023

Key Points

This research aims to understand how remittances in the Philippines influence the allocation of financial resources towards consumption and investment.
Estimated four ordinary least squares regression models from 2000 to 2023 using World Development Indicators data.
Dependent variables included savings, investment, consumption, and domestic credit.
Used Newey-West standard errors to account for heteroskedasticity and autocorrelation.
Remittances positively and significantly correlate with household consumption (β = 0.393, p = 0.001).
Remittances negatively impact gross fixed capital formation (β = −0.356, p = 0.001).
Weak positive association found between remittances and savings; no significant relation to financial deepening.

Abstract

The Philippines receives among the largest remittance inflows in Southeast Asia relative to gross domestic product, averaging approximately 10 percent of GDP across the 2000–2023 period. Despite their scale and counter-cyclical stability, the macroeconomic allocation of these flows — whether they are predominantly directed toward savings, productive investment, household consumption, or financial intermediation — remains without rigorous country-specific empirical resolution. This paper addresses that gap by estimating four ordinary least squares regression models with Newey-West heteroskedasticity- and autocorrelation-consistent standard errors using Philippine annual World Development Indicators data spanning 2000 to 2023. The dependent variables are gross national savings, gross fixed capital formation, household final consumption expenditure, and domestic credit to the private sector by banks, each regressed on personal remittances received as a share of GDP with a consistent set of macroeconomic controls. Unit root pre-testing confirms that savings, investment, and consumption are integrated of order one; Models 1 through 3 are accordingly estimated in first differences. Domestic private sector credit is stationary in levels and estimated as such in Model 4. Results consistently support the consumption-direction hypothesis: remittances are positively and significantly associated with changes in household consumption (β = 0.393, p = 0.001) and negatively and significantly associated with changes in gross fixed capital formation (β = −0.356, p = 0.001). The savings association is positive but weakly supported and partially sensitive to pandemic-year controls. Remittances are not associated with financial deepening; foreign direct investment emerges as the external capital source most strongly linked to private credit depth (β = 6.514, p < 0.001). Robustness checks using lagged remittances and a COVID-2020 dummy corroborate the main consumption and investment findings. These results characterise the Philippine remittance economy as a remittance-consumption equilibrium with identifiable implications for business strategy, enterprise financing, and entrepreneurial ecosystem design in remittance-dependent emerging markets.

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